Center for Real Estate

The Center for Real Estate (MIT/CRE) was founded in 1984. The mission of the center is to improve the quality of the built environment through education and research and by facilitating communication among members of the real estate industry worldwide. To this end, it carries out research and teaching programs in the field of real estate development, investment, and management. It also provides a forum for the exchange of information and the discussion of issues by real estate professionals from around the world. The center's principal activities include an 11-month professional degree program leading to a Master of Science in Real Estate Development and a research agenda of issues relating to the planning, development and management of real estate, including its financial performance.

Education

Thirty-four members of the Class of 2000, the sixteenth class of MSRED graduates, received their S.M. degrees in Real Estate Development in September 2000. Three more students completed their requirements and received their degrees in either February or June of 2001. The 30 members of the incoming Class of 2002, which includes seven joint degree candidates, were selected in April from an applicant pool which was strong though smaller than last year's. The new class of 13 women and 17 men includes 11 international students. Five incoming students already hold advanced degrees in business, architecture, finance, or law.

The center is fully supporting one ongoing Ph.D. candidate jointly in the Departments of Economics and Urban Studies and Planning.

There were no major changes to core courses this year, though course content continues to evolve as the real estate industry changes, particularly in the area of finance and real estate capital markets. Next year, while Timothy J. Riddiough, Associate Professor in the Department of Urban Studies and Planning, is on sabbatical, his core courses 11.431J Real Estate Finance and Investment and 11.432.J Real Estate Capital Markets will not be offered. Instead, MSRED students will be required to take 15.402 Finance Theory II in the spring term and a new two-term seminar in Real Estate Finance (11.921 and 11.922) designed to complement the Finance Theory courses. The seminars will be given by W. Tod McGrath, Lecturer in the Department of Urban Studies and Planning.

Research

Center faculty are engaged in a number of research projects. Professor of Economics William C. Wheaton has been researching the causes and consequences of the spatial dispersion of jobs in cities throughout the world. Others have documented the trend, but theoretical explanations are yet to be devised. In a paper to be published this year, Professor Wheaton shows that wages for identical workers vary by where they work and that work locations with more difficult commuting pay more. He has devised a model to explain this process, and will give a paper on this in Tokyo in August. He also has two Ph.D. students working on dissertations that extend this research to cases where workers continually move between jobs within cities. Henry Pollakowski, visiting scholar in the Department of Urban Studies and Planning, is doing follow-up work on his study of the Bermuda housing market for the Bermuda Housing Corporation. He also completed an initial simulation model which projects state sales tax losses stemming from internet retail growth. This research, the first to deal seriously with location and detailed product lines, is being done jointly with the University of Wisconsin and supported by the International Council of Shopping Centers.

Professor Riddiough published some of his recent work on Real Estate Investment Trusts as a working paper entitled "Unsecured Debt and Financial Policy of Real Estate Investment Trusts." That study finds that firms seem to manage to target leverage ratios in order to maintain a minimum credit rating. Professor Wheaton published a working paper, "Ski Resort Real Estate Markets: Why Not to Invest," based on thesis research done by co-author John D. Corey '00. They find that resort supply responds so elastically to any movement in prices or business that it effectively curtails any long term property appreciation. Professor Pollakowski's study, "Monitoring Housing in Bermuda: Recommendations," was published as a working paper. It is a thorough discussion of the rationale, and strategies for collecting data on the Bermuda housing market.

For a fifth year, the center hosted visiting scholar, Henry Pollakowski, housing economist and editor of the Journal of Housing Economics.

Professional Education

The sixteenth summer of professional development courses brought 296 attendees to campus in June and July of 2000, a substantial decrease from the previous summer's attendance. Attendees enrolled in nine courses, including one new course, "Structuring Complex Real Estate Transactions," which was very well received. Another new course, "Advanced Real Estate Negotiations," also did somewhat better than projected. Attendance at real estate capital markets courses was way off. Encouragingly, enrollment in the center's 2001 Summer Institute courses was running well above 2000 figures at the end of June. There were two new courses in 2001: one on "Benchmarking Real Estate Investment Management and Performance Measurement," taught by MIT Ph.D., Professor David Geltner of the University of Cincinnati, and Professor Riddiough's "Innovations in Real Estate Finance."

Membership

Income from membership declined as the center closed the year with 68 supporting members (including six international members). This represents a net loss of 23 over the previous year, however, 15 of the members who left had joined as part of a special fund raising effort and were not expected to maintain their memberships long-term. Also, Chairman Blake Eagle, who has led the effort to recruit and maintain member companies, left the center in December as part of a planned transition, although the new chairman could not take office until June. In addition to annual fees, many members supported the center in non-financial ways by providing case study sites, lecturing in class, and supporting student thesis work. For a fifth year, Robert Danziger, retired Chairman of member firm Northland Investment, organized and led the well-received Real Deals speaker series.

The center hosted a lively and well-attended members meeting in November for corporate supporters, current students, and faculty. The topic of the meeting was the impact of the internet and other new technologies on the demand for real estate. The dinner speaker was Center Director, Professor Wheaton, who presented an overview of the topic, concluding that "telecommunications make it less and less likely that real estate asset prices are ever going to appreciate above inflation," an unpleasant finding for his audience. The following morning a group of practitioners and academics including MIT Professor of Engineering Systems, David Simchi-Levy, gave their views on technology impacts on the industrial, retail, hospitality, and office sectors of the real estate market.

A smaller meeting of members, faculty and students in May, entitled "Development Finance: Irrational Conservatism," examined the apparent constraints on the current availability of capital for development. Edward J. Kane, Cleary Professor of Finance at Boston University was the dinner speaker, explaining his view of the state of current capital markets. The next morning, speakers representing capital suppliers, regulators, and developers gave their views on the relative availability of construction and take-out financing. In general, existing constraints were agreed to be rational and necessary.

Administration

After seven years at MIT, Chairman Blake Eagle left in December to become President of the National Council of Real Estate Fiduciaries. His successor, John T. Riordan, formerly president of the International Council of Shopping Centers, and well known in the real estate industry, took up residence at MIT in June. Director, Professor William Wheaton and Associate Director, Marion Cunningham continued in their posts this year.

The refurbishing of the center's quarters continued this year with a face-lift of the central office area. The redesigned workspace provides quieter and more private accommodations to the support staff. The work was paid for from the center's accumulated operating surplus. Instigated by a Class Gift and leadership from members of the Class of 2000, planning was begun to update carpet, paint, and furnishings in the student lounge and adjoining conference room. That project is scheduled for completion in the fall of 2001.

William C. Wheaton

Information about Center for Real Estate programs is published online at http://web.mit.edu/cre/www/.
This is also the primary source for public inquiries about the MSRED program,
professional development courses, and working papers. Planning for a web site
redesign was initiated in the spring as a result of a reassessment of the center's
marketing strategy. The redesign should be complete in FY2002.